Articles of interest to people living in or involved with co-operative or condominium apartments in New York City. An emphasis will be on improving and running a building, which is of special interest to board members.

Sunday, June 3, 2007

FROM the stacks of allergy medicine at Duane Reade to the students "doing homework" at the Sheep Meadow in Central Park, it's clear that spring has overtaken New York. Which means it's time for apartment owners to come together in their annual meetings and debate what to do to the spaces they have the fortune, or misfortune, to share.

The owners who paid the most for their apartments are usually the first ones to argue for upgrades so their buildings do not lag behind newer condos, and so they can live in a style commensurate with a seven- or eight-figure purchase price.

But unless these buyers are very generous, they cannot simply repaint all the hallways, convert the basement into a gym or hire a new landscaper for the common garden. The costs have to be shared by all of the residents, and there's the problem. Not every war chest can satisfy every dream. Many can't even finance must-do budget-busters like replacing deceased boilers, dilapidated roofs and temperamental elevators.

Buildings that have failed to accumulate big nest eggs have to make some tough decisions. Their boards are often inclined to levy assessments on the individual shareholders, for one or two or six months in a row (or even years), rather than increase the maintenance (or in condominiums, common charges), an act that is often seen as a deterrent to sales.

But are boards that choose to assess instead of raising maintenance unwittingly jeopardizing the property values they seek to protect?

"There's a balance here," said Jonathan J. Miller, the president of Miller Samuel Inc., a Manhattan appraisal company. Driven by escalating costs of fuel, insurance and property taxes, maintenance fees have risen an average of 24.1 percent over the last five years, compared with 10.2 percent in the preceding five years, according to Miller Samuel.

These days, monthly maintenance fees of $1.30 to $1.60 a square foot are considered good, Mr. Miller said, and anything more than $2 a square foot is on the high side.

Nervous boards looking elsewhere for fund-raising may not fully appreciate that they are merely treading a different path to the same buyer-repelling door.

"If the maintenance levels are kept at too low a level, then you're basically firefighting anytime something breaks," Mr. Miller said. "It impacts the appeal of an apartment. So having very low maintenance charges is not always a good thing."

(In appraising an apartment, his company checks two years of assessment history; a troubled scorecard can neutralize the boost that would otherwise be provided by low maintenance.)

"I don't think there is the same sensitivity to the frequency and amount of special assessments and their impact on value as there is with maintenance," Mr. Miller said. After the last increase in property taxes in New York City in 2003, he said he fielded questions from around two dozen co-op buildings about the competitive standing of their maintenance fees. "No one asked about assessments," he said.

Property values aside, assessments are painful for apartment owners in the obvious way that parting with one's money usually is. But they also tend to provoke a degree of hostility largely absent when, for example, a toilet — or entire bathroom — needs to be replaced.

"People have a renters' mentality," said Paul J. Herman, the executive vice president at Brown Harris Stevens Residential Management, which handles 150 co-ops and condos in Manhattan. "They forget they have to pay the piper to maintain it."

For owners on the receiving end of an assessment, an ice age of deferred pleasures and hard feelings often ensues. When confronted with an assessment, "I clutch," said Svetlana Choi, a senior sales associate at Bellmarc Realty and an Upper West Side co-op owner. "And when they finally break it down for you and explain what it's for, then you kind of tighten your belt and deal with it. But everyone dreads it."

Marc G. Windheuser, an associate broker at Prudential Douglas Elliman, agreed. His co-op in Bayside, Queens, recently assessed his two-bedroom apartment $2,000 to pay for repairs and upkeep on the three-building 300-unit complex. "I'm not happy about it, but I'm realistic," he said. "What boggles my mind the most is that the people who scream and cry the most are also the ones who scream and cry about other things they want done."

Especially galling for owners who do not sit on their buildings' boards is the lack of control over how their money — and how much of it — is spent. Within their own apartments, owners can choose whether to install a $300 toilet or a $2,700 model, or simply to keep a plunger handy and hope for the best. But they have no standing to choose a $100,000 lobby renovation over one costing $500,000, or even whether to renovate at all.

In most cases, an owner's only practical recourse is to catch the attention of a sympathetic board or to toss the board out on its ear in the next election, by which time it may be too late.

In the meantime, just as influenza disproportionately affects those with the weakest immune systems, assessments inflict more misery on people with fixed incomes and those just starting out. Among the latter group are the thinly stretched first-time buyers who failed to anticipate the possibility of being assessed.

"With a house I think I would have been a lot more thorough," said Jason Rogers, 30, referring to his lack of attention to the condition of the condo building where he and his wife, Sarah, 27, bought three years ago. "But in an apartment building, if one person has a problem, you all have a problem, and I didn't even think about it."

To buy their $310,000 one-bedroom apartment in Clinton Hill, Brooklyn, the couple leveraged themselves as steeply as the pitched slate roofs of their neo-Gothic building, which once housed a Catholic prep school. Their no-holds financing included a three-year adjustable-rate mortgage and a home-equity line of credit to supplement their 10 percent down payment.

At a board meeting a month after closing, their homeowners' honeymoon ended. They learned that the building was about to level a $600,000 assessment to repair the gorgeous but apparently dysfunctional roof.

"I was still trying to get used to the lingo," Mr. Rogers said, "so initially I was confused as to what was actually happening." But the cash-strapped couple soon understood they owed $12,000.

"That just completely knocked us out," said Mr. Rogers, a freelance photographer. Ms. Rogers works as an administrative assistant at a project management consulting firm. Even under normal circumstances, he explained, the erratic nature of his income induces a semipermanent state of panic about finances. "We had already stretched ourselves pretty much to the max of what we could have done," he said.

If their lawyer had unearthed this looming expense while they were negotiating, they might have been able to deduct it from the purchase price. Now they had no choice but to pay the assessment through a 10-year financing plan offered by their building. At $161 a month, the $12,000 tab will wind up costing them $19,358, about two-thirds the size of their down payment on the apartment. And that doesn't include the additional $2,040 assessment imposed six months ago to cover budget overruns on the roof project.

As disagreeable as it is to pay for an assessment, selling an apartment to get away from the situation can be even more trying. Sellers often underestimate the destabilizing power of an assessment.

"In a well-run co-op or condo building, an assessment shouldn't kill a deal if it's not ridiculous," said Wesley Stanton, a senior agent at Manhattan Apartments, "but there are certain buildings where you find out assessments are just a way of having a really flexible maintenance they increase and decrease as they want." He was referring to the "everlasting assessment" phenomenon. "Sometimes you get into a situation where you have a mismanaged building with no reserve fund, like a condo with a ton of amenities, and they're kind of living beyond their means."

But even legitimate assessments for capital improvements can be a bit of an albatross when it comes to selling.

The problem for buyers, according to Michale Lembo, a sales agent at Coldwell Banker Hunt Kennedy, is that "by the time they get their arms around prices in Manhattan, they tend to be spending at the top end of their range to get the apartment they want." He added, "Then they find out there is an additional assessment, so that can be a little tough for them to accept."

Brokers recommend a variety of balms for queasy buyers.

"Market it honestly," said Michael Goldenberg, an associate broker at Halstead Property. "You should be able to tell your buyer how much the assessment is, how long it's been on and how long it will be on and what it's being used for. If it's being used positively, it's a good thing, not a bad thing. If you don't take care of the building, it's going to deteriorate more greatly than necessary and so assessments are the way to keep your expenses down over a long period of time."

It also doesn't hurt to point out that assessments for capital improvements can be used to offset capital gains when it's the buyer's turn to sell.

Still, it's harder to make lemonade out of a long history of assessments. Three assessments in five years, for example, is at least one too many, Mr. Lembo said.

His comment was echoed by Diane Ramirez, the president of Halstead. "A building that is known for assessments you've got to watch," she said. "It means that maybe in the past they weren't watching their capital improvements, and now they're doing catch-up work. It's all telling little bits of stories on the building, whether it's less sound than what one would want to be involved in. And you always want to be in a building that is attractive to potential buyers."

The shorter and smaller an assessment is, the less it may frighten a buyer. But the price of the apartment and the profile of the buyer also matter.

"If it's listed at $1.5 million, an assessment is a factor for certain buyers," said Ellen Devens, an associate broker at Brown Harris Stevens. "If you're a first-time buyer and you're coming from a rental and you know you have an additional $230 per month assessment, it may take you out of your comfort range. If the purchase price is higher than $1.5 million, then the extra money is, I think, inconsequential."

Understandably, wealthy buyers are most likely to brush off an assessment, said Silvia Murphy, an associate broker at Halstead. She lost two buyers earlier this year on a $2 million two-bedroom, two-and-a-half bath condo near Lincoln Center that was under a cloud of past and future assessments for capital improvements and an ongoing lawsuit.

"I told my sellers that this apartment would have to be sold to someone with a lot of money, an overseas buyer who really doesn't care about paying an extra $500 a month," said Ms. Murphy, who found such a buyer. "I was lucky. An apartment in the same line has been on the market since August. It had four deals fall apart."

Some brokers recommend that sellers promise to pay all or part of the assessment. But whether to do so in a healthy market like this, Mr. Lembo said, "really depends on the condition of the apartment. The better the condition of the apartment, the better the building, the less apt the seller would be to kick in."

What if an assessment is announced after a contract is signed but before the closing? Standard contractual language says the assessment must be paid by whoever owns the unit when it comes due, said Steven Wagner, a real estate lawyer at Wagner Davis in Manhattan. But as a practical matter, that often depends on who is most eager to conclude the deal.

Ms. Devens recently sold a one-bedroom in a Central Park West Art Deco building, an apartment owned by an elderly woman who was moving to an assisted-living complex in the Midwest. After the contract was signed for $500,000, a $10,000 assessment for structural work was announced. The buyers, a young couple purchasing their first apartment, "were digging their heels in and didn't want to pay," Ms. Devens said. The seller, who was ready to move on, agreed to foot the bill.

Things can go the other way, too. Two years ago, Mercedes Menocal Gregoire, a sales agent at Stribling & Associates, sold a friend's $3.2 million TriBeCa loft to a wealthy out-of-state couple buying it as a pied-à-terre. The couple had signed the contract knowing that several years earlier, the 3,000-square-foot apartment had been assessed $100,000-plus as its share for repairing shoddy work done by the sponsor.

"Two days before closing, there was a notice under the door announcing a $200,000 assessment for more work to the building," Ms. Gregoire said.

"I cannot tell you how stressful those two days were." Eventually, after learning that the assessment hadn't been deliberately hidden, the buyers agreed to pay.

Ms. Gregoire argues that the buyers actually profited from the building's unfortunate situation. "I would have gotten so much more money for this apartment if it wasn't in this building," she said, "maybe $500,000 more."

ASSESSMENTS come in all sizes, none of them custom-tailored. Though apartment owners in straitened financial circumstances or on fixed incomes may be tempted to throw themselves on the mercy of the board, they shouldn't expect much.

"If the board wants to voluntarily allow nonpayers to slide, they can do so," said Aaron Shmulewitz, a real estate lawyer at Belkin Burden Wenig & Goldman, a Manhattan firm that represents more than 250 co-op and condo boards in New York City.

A board can allow the amount owed "to sit on that person's account, accruing interest or late charges, until the person sells or wants to refinance," he said. "But in the vast majority of cases, boards don't."

In the worst-case situation, a co-op has the right to begin an eviction proceeding. (In a condo, it's a foreclosure proceeding.)

Of course, most boards recognize in advance the need for some breathing room and stretch payments over several months or, in a major assessment, for years to reduce the sting. Owners are usually also granted the option of paying promptly in a lump sum, at a slight discount.

Another option for those who have built up enough equity in their apartments is to refinance their mortgages or to take out a home-equity loan. Many co-ops have relaxed their attitudes toward these loans in recent years at the same time that more banks, for a variety of reasons, have become more willing to make them.

"It's not as hard as you think, not anymore, because boards know there's a lot of equity in the apartments," said Andrew Hood, a vice president of NCB, a national bank that lends to co-op owners. "Co-ops aren't just the old 'Fifth Avenue pay cash or don't live here' variety."

NCB started making home-equity loans to co-op owners in late 2004 and has found the demand for them has grown an average of 21 percent each quarter since. Its rates on variable-rate home-equity loans for co-ops currently begin at 7.25 percent.

Finally, if the assessment is for the sort of property damage or liability covered by an individual homeowner's insurance policy — fires, vandalism or a slip-and-fall lawsuit, for example — owners may be able to recover part or all of the assessment through their insurers. Blue-chip insurers tend to have generous limits built into their policies — Chubb, for example, will pay up to $100,000 — but a loss assessment rider can be added inexpensively to other policies.

"We tend to recommend $10,000 to $25,000, at about $100 per year, but not everybody takes it," said Blaine Ward, a sales associate at the Doyle Partnership, a property and casualty insurance brokerage in Westport, Conn., that insures many Manhattan co-ops and condos.

Some owners count it among the best investments they ever made. TERI KARUSH ROGERS

Friday, June 1, 2007

Q Are shareholders in co-ops entitled to receive a list of all the other shareholders and their addresses, phone numbers, etc.?

A Dennis H. Greenstein, a Manhattan co-op lawyer, said that under New York's Business Corporation Law, all corporations, including housing co-ops, are required to maintain a list of the names and addresses of shareholders. In addition, Mr. Greenstein said, the law requires the corporation to make such names and addresses available to other shareholders who request them, upon five days' notice.

He said that the law does not require the co-op to provide an actual list of shareholders and their addresses but only to make the list available for examination by another shareholder. As a practical matter, that could mean that the shareholder who is seeking the information may have to copy it from the records provided.

Mr. Greenstein added that under the law, the corporation can require the shareholder to provide an affidavit that the information will not be used for commercial purposes. The law does not require a corporation to list shareholders' phone numbers. JAY ROMANO

Address questions to Real Estate Q&A, The New York Times, 229 West 43rd Street, New York, N.Y. 10036, or by e-mail to: realestateqa@nytimes.com. Answers can be given only through the column.